The United States government is facing a debt crisis. According to Congressional Budget Office (CBO) projections, debt held by the public will double from $9 trillion in 2010 to $18.2 trillion in 2021. Over this period, publicly held debt will rise from 62 percent of Gross Domestic Product to 77 percent. Since 2008, discretionary spending has increased by 12.5 percent, and the CBO forecasts continued growth in spending for our three largest entitlement programs, Medicare, Medicaid, and Social Security.
In June 2011, the CBO reported that the federal deficit through the first eight months of fiscal year 2011 was approximately $6 billion less than the 2010 deficit through the corresponding eight months. Lower is good, but this small improvement is not enough given the level of federal red ink over the past three years.
In 2010, the federal budget shortfall was $1.3 trillion. In 2009, the deficit was $1.4 trillion. Despite the slight improvement, we remain on track for a deficit of similar magnitude. Such borrowing is unsustainable, particularly as the U.S. Treasury has hit the statutory debt limit of $14.294 trillion. The debt limit applies to debt held by the public and that held by government trust funds, such as the one maintained for Social Security.
In Washington, there is ongoing debate over how to address federal deficits. Some say higher taxes are needed to sustain current spending, while others counter that spending is too high. A further look at the CBO's June report shows that through May federal revenues increased by over 10 percent when compared to this time last year. Spending, however, also increased by nearly 6 percent. As an improving economy produced higher revenues, without a tax increase, government spending continued to consume each new dollar. It's clear that spending is driving deficits, and this is where Congress needs to focus its attention.
Led by the new Republican majority in the House of Representatives, Congress has already begun to address federal spending. On April 14, 2011, the House passed H.R. 1473, legislation to provide funding for the remaining months of the fiscal year, with Rep. Petri's support, by a vote of 260 - 167, and the legislation was signed into law by the President on the following day. This bill, made necessary by the failure of last year's majority to pass any 2011 appropriation bills, cut nearly $40 billion in spending when compared to 2010 funding levels.
Again, lower spending is good, but the reductions achieved by H.R. 1473 are not enough to solve our budget problems. More work needs to be done. Returning once more to the CBO's June budget report, it is clear that outside the rising cost of servicing our national debt, 2011's spending increases are being driven by the rising costs of America's entitlement programs.
H.Con.Res. 34 - The House Budget Resolution
On April 15, the House passed H.Con.Res. 34, a resolution to establish a federal government budget for fiscal year 2012 and provide a spending framework for the next ten years. Rep. Tom Petri joined a majority of his colleagues in approving this budget by a vote of 235 - 193.
Most Americans are aware that federal budgeting is on the wrong track, and many are concerned with annual deficits approaching $1.5 trillion. Clearly, this is not sustainable. The budget approved by the House would reverse the trends that have produced rising spending and growing deficits by:
- reducing spending by $5.8 trillion from the current budget baseline over 10 years,
- lowering anticipated deficits by $4 trillion over the same period,
- bringing government spending below 20 percent of Gross Domestic Product, and
- setting domestic discretionary spending below fiscal year 2008 levels.
This resolution tackles much more than the discretionary side of federal spending and offers bold proposals for changes to entitlement programs, particularly health care programs, that are the chief drivers of future debt. The proposed reforms of Medicare and Medicaid would transform these program while securing their very existence for future beneficiaries.
By cutting spending by $5.8 trillion and reducing future deficits by $4 trillion, this budget is a crucial first step in meeting the budget challenges that threaten our financial future. While some may disagree with the particular details of the reforms anticipated in this resolution, H.Con.Res. 34 puts these issues on the table, allowing Congress and the American people to debate solutions to the problems we face.
The Senate, in a procedural vote, declined to take up the House-passed budget, and has yet to offer its own plan for resolving our budget problems. Other avenues of spending control will need to be pursued.
A Question of Raising the Debt Ceiling
Federal borrowing is capped by a legal limit of how much the federal government can borrow. This limit, currently set at $14.294 trillion, was reached in May 2011, requiring the Secretary of the Treasury to employ certain flexibilities to remain current with government obligations. Once these options have been exhausted, federal spending will be limited to current revenue (about 60 percent of current expenses).
On May 31, the House considered and defeated H.R. 1954, legislation to raise the debt ceiling to $16.7 trillion. This bill was defeated by a vote of 97 - 318. Rep. Petri joined those voting against this increase because the legislation did not include significant changes in the way business is done in Washington. Specifically, as a "clean" debt ceiling increase, H.R. 1954 contained no spending cuts, entitlement reform, or budget process improvements.
Currently, we are running annual deficits approaching $1.5 trillion. Such borrowing cannot be allowed to continue, and we need to act fast to reduce our reliance on borrowed money. Reaching the limit of our ability to borrow offers Congress a perfect opportunity to address our overreliance on debt by making immediate spending cuts and other program changes that will reduce long-term spending.
With the defeat of this so-called "clean" debt limit increase, it should be clear to the Obama administration, and other opponents of spending restraint, that dealing with our deficit can no longer be delayed. A debt limit increase accompanied by substantial spending reductions should be negotiated so that we can move forward in a responsible way.